Less than a third of $175bn natural catastrophe losses covered by insurance

Deadly storms and earthquakes across the globe led to the costliest twelve months for natural catastrophe losses since 2012, with insurers paying out around $50bn to cover just 30% of global losses.

That was the key finding from reinsurers Munich Re’s annual survey, released on Wednesday (4 January), which stated that global losses from natural disasters reached $175bn in 2016. This substantial figure is around two-thirds higher than the previous year.

The survey highlighted devastating earthquakes on the Southern Japanese island of Kyushu, as well as floods across China in June and July, as the costliest occurrences in 2016 – accounting for $51bn of the overall costs.

While Munich Re noted that figures for 2016 are back into the expected mid-range for yearly losses, the amount of uninsured losses – totalling 70% of the $175bn amount – would need to be tackled by the insurance industry in developing and emerging countries.

“The high percentage of uninsured losses, especially in emerging markets and developing countries, remains a concern,” Munich Re’s board of management member Torsten Jeworrek said. “Greater insurance density is important, as it helps to alleviate the financial consequences of a catastrophe for more people. With its risk knowledge, the insurance industry would in fact be able to bear a much greater portion of such unpredictable risks.”

Munich Re’s NatCatService recorded 750 medium and large scale loss events from natural causes in 2016 – significantly above the ten-year average of 590. In fact, both overall losses and insured losses were above the inflation-adjusted averages for this timeframe, with average figures reading $154bn and $45.1bn respectively.

While the costliest natural disasters occurred in Asia in 2016, North America was subjected to the largest amount of loss occurrences since 1980, with 160 events recorded. Overall US losses, largely caused by Hurricane Matthew, totalled $10.2bn.

Wildfires and flooding also wreaked havoc in the US, Canada and in parts of Europe. Canada’s mild winter and smaller snowfall was followed by spring heatwaves and droughts which totalled $4bn in wildfire damage, however around two-thirds of this figure was insured.

Floodgates are open

Flooding in North America led to $10bn in losses, while similar natural catastrophes in Europe generated $6bn in losses, half of which was insured. Flooding has been a large cause of damage in the UK, and while the Government is committed to investing £419m in flood prevention measures, research has found that £1.5bn is spent on subsidies that either ignore or increase flood risk.

Munich Re’s research found that there was an “exceptional” amount of flood events in 2016, which accounted for 34% of overall losses, well above the 10-year average of 21%.

“A look at the weather-related catastrophes of 2016 shows the potential effects of unchecked climate change,” Munich Re’s head of geo risks research Peter Höppe said. “Of course, individual events themselves can never be attributed directly to climate change.

“But there are now many indications that certain events – such as persistent weather systems or storms bringing torrential rain and hail – are more likely to occur in certain regions as a result of climate change.”

Death and taxes

These climate-induced catastrophes were responsible for the death of some 8,700 people in 2016, although enhanced climate resilience has placed this figure well below the ten-year average of 60,000 deaths.

While developed countries have the funds available to protect economies and businesses against climate change – American banking giant Goldman Sachs has invested $14bn in natural catastrophe bonds since 2012 – developed countries are in need of financial aid to help cover some of 70% of uninsured losses.

Developed countries are “confident” that $100bn will be financed annually to aid climate actions in developing countries by 2020, but reports have warned that the insurance industries in those developed countries must do more to protect citizens at risk from climate change.

Matt Mace

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